Financial Reporting

1007 Words Jan 9th, 2018 4 Pages
The Ruger's uses direct cost allocation of expenses in the cost pool to three revenue-producing patient services. Drivers under consideration for the allocation of costs are patient service revenue (a direct dollar for dollar allocation) and hours of housekeeping services used (a volume-based activity for allocation). Drivers amounted to the following activity in dollars and volume, respectively:
$5,000,000 in Total Revenues for 2007
5,000 hours of Housekeeping Services for 2007
Using these drivers, costs can then be allocated to the revenue-producing activities based on their volume used or dollars generated. Under the direct allocation method using 2007 Total Revenues, the allocation rate is calculated as follows:
Total Cost Pool Expenses/Total Revenues
$100,000 / $5,000,000 = $0.02
With costs allocated according to the revenue generated, $0.02 of cost is allocated to each dollar generated. The per unit costs are comparatively different when the volume-based housekeeping hours drivers is used for calculation. Under the allocation method using housekeeping hours used, the allocation rate is calculated as follows:
Total Cost Pool / Hours of Housekeeping Services Used
$100,000 / 5,000 hours = $20.00/hour
The allocation rate calculates to $20.00 of cost allocated to each hour of housekeeping services used.

A cost-volume-profit analysis analyzes the…
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